Thursday, November 14, 2013

Terminate the renewable scheme now

The sun is setting on the carbon tax. At its current rate, $24 per tonne of CO2, the tax increases the wholesale electricity price by 55 per cent and a Treasury endorsed OECD paper estimates Australia needs a tax of $78 per tonne to meet its emission restraint goals.

Other countries are not following Australia's lead in imposing a cripplingly high carbon tax — they are not even taxing emissions at the European Union's $6 per tonne. The IPCC's recent grudging acknowledgement that its forecasts of soaring global temperatures have failed to materialise over the past 17 years can only reinforce governments' resistance to penalise their economies in this way.

The carbon tax is not the only such burden carried by Australia's producers and consumers. Other measures including subsidies from general taxation and renewable energy requirements the cost of which have led to reduced industrial and household demand.

With the discontinuation of the carbon tax, alongside the $2 billion a year in subsidies from the "Clean Energy Finance Corporation", these other measures' effects become more prominent.

Labor's budgetary expenditure on emission restraints was about $4 billion a year. The Coalition's average annual spending, including $800 million on Direct Action, looks to be under $2 billion. Doubtless this will be further pared.

Renewable Energy requirements for electricity supply have been around since 2001. Over the years the mandatory share has been expanded and is scheduled to ramp up to constitute a notional 20 per cent of supply by 2020. Aside from around 15,000 GWh of (commercial) hydro, this has been defined as a 2020 target of 45,000 GWh of subsidy-reliant electricity. The target comprises 4,000 GWh for small scale, roof-top solar facilities and 41,000 for larger facilities, overwhelmingly comprising wind farms.

Overall, renewable requirements add about 40 per cent to the wholesale electricity cost.

Wind generation costs are at least $100 per GWh, compared with less than $40 for coal, the predominant electricity supply source. Wind also involves some increased network and back-up costs.

Roof top solar facilities have fallen in price and now receive less favourable regulatory treatment than previously. Nonetheless, their electricity generating costs and grid connections that are subsidised by commercially supplied electricity makes roof top solar at least five times more expensive than coal.

Progression to the 45,000 GWh annual target would involve a cost and consumer subsidy to renewables rising year-by-year to $5 billion a year by 2020. By then the renewable program would have imposed a total cost amounting to some $23 billion. And, because the subsidy extends for the 15 year life of each facility, (solar roof top installations receive this subsidy up-front) the annual cost will continue to increase after 2020 before gradually tapering off and exhausting itself by 2035.

Changes to the program ostensibly follow advice from the Climate Change Authority (CCA). Appointed by the Rudd Government and chaired by Bernie Fraser, the authority's legislation was intended to lock-in the program, preventing a future Coalition government from dismantling it. This built-in restraint could be overcome.

Options for modifying the scheme include:

The "Origin Energy" proposal, which reduces the renewables total to a genuine 20 per cent by 2020 as initially intended. This would imply a maximum of 33,000 GWh of subsidised renewables, reducing the 2020 annual cost to $3.7 billion.

A variation of this would allow only the existing and committed projects to proceed as subsidised. This would mean about 15,000 GWh and an annual cost rising to $1.7 billion by 2020.

The full costs could be saved if the program were to be totally abandoned, forcing renewables to immediately compete without subsidy, as their adherents always claimed they would eventually be able to do.

Beneficiaries would argue that terminating the renewable subsidies would constitute "sovereign risk" and adversely affect investment generally. But we are already seeing previously guaranteed income streams from overseas renewable schemes facing early termination. No investor can reasonably expect a subsidy to prevail for 15 years and there would be few precedents for a government committing its successors to 24 years of worthless expenditure.

The case for an immediate termination is strengthened by the fact that the original rationalisations for the subsidy program have been undermined. No longer is it seriously maintained that in a few years' time renewables will, with modest initial support, become competitive with conventional supplies. And it has also become clear that the world will not undertake carbon dioxide abatement measures comparable to those of Australia hence any domestic measures have a trivial effect.

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RICHARD J WOOD

Today, those who subscribe to the principles of individual liberty, limited government, the free market, and the rule of law call themselves by a variety of terms, including conservative, libertarian, classical liberal, and liberal.

I see problems with all of those terms.

"Conservative" smacks of an unwillingness to change, of a desire to preserve the status quo.

Only in Australia do people seem to refer to free-market capitalism — the most progressive, dynamic, and ever-changing system the world has ever known — as conservative.

Additionally, many contemporary Australian conservatives favour state intervention in some areas, most notably in trade and into our private lives.

"Classical liberal" is a bit closer to the mark, but the word "classical" connotes a backward-looking philosophy.

Finally, "liberal" may well be the perfect word in most of the world — the liberals in societies from China to Iran to South Africa to Argentina are supporters of human rights and free markets — but its meaning has clearly been corrupted by contemporary Australian liberals.

The philosophy that animates my work has increasingly come to be called "libertarianism" or "market liberalism."

It combines an appreciation for entrepreneurship, the market process, and lower taxes with strict respect for civil liberties and scepticism about the benefits of both the welfare state and foreign military adventurism.

The market-liberal vision brings the wisdom of the Australian Founders to bear on the problems of today.

As did the Founders, it looks to the future with optimism and excitement, eager to discover what great things women and men will do in the coming century.

Market liberals appreciate the complexity of a great society, they recognise that socialism and government planning are just too clumsy for the modern world.

It is — or used to be — the conventional wisdom that a more complex society needs more government, but the truth is just the opposite.

The simpler the society, the less damage government planning does.

Planning is cumbersome in an agricultural society, costly in an industrial economy, and impossible in the information age.

Today collectivism and planning are outmoded and backward, a drag on social progress.

Market liberals have a cosmopolitan, inclusive vision for society.

We reject the bashing of gays, Japan, rich people, and immigrants that contemporary liberals and conservatives seem to think addresses society's problems.

We applaud the liberation of blacks and women from the statist restrictions that for so long kept them out of the economic mainstream.

Our greatest challenge today is to extend the promise of political freedom and economic opportunity to those who are still denied it, in our own country and around the world.